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Thursday, 31 July 2008

Islamic Banking in Numbers

29/07/2008



Riyadh, Asharq Al-Awsat- Today Islamic banking is in its golden age since it is attracting the attention of some of the largest financial consultants, law firms and research and publishing institutions that frequently issue reports on the developments taking place in the industry. These include McKinsey & Company’s report on competition in Islamic banking, reports by Moody’s and Standard & Poor’s, which are amongst the most reputable credit rating institutions in the world as well as analyses by Bloomberg and the Financial Times.

The reason that Islamic banking is receiving so much attention is due to its increasing activity; the estimated number of Islamic banks around the world has reached 396 throughout 53 countries and the estimated volume of funds within the Islamic banking sector stands at US $442 billion, according to a report by the General Council for Islamic Banks and Financial Institutions [GCIBFI] in 2008.

The truth is that these figures, similar to what is mentioned in Moody’s report, indicate that the volume of funds managed by the Islamic banking industry stands at approximately US $700 billion globally with an average annual growth rate of 15 per cent.

According to the Moody’s report, sukuk is considered the fastest growing Islamic banking product and is estimated to increase annually at an average of 35 per cent. By the end of 2007, the volume of Islamic bonds reached US $97.3 billion, 26 per cent of which account for the issuance of sovereign sukuk whilst the remainder were issued by corporates. According to Standard & Poor’s, between 20 and 25 percent of all sukuk around the world are available for circulation in secondary markets.

The Moody’s report observed that the Arab Gulf states have become key players in the sukuk market and the total issuance of sukuk in 2007 was estimated at US$19 billion; 58 per cent of which came from the UAE, 30 per cent from Saudi Arabia, and the remainder from Kuwait, Bahrain and Qatar.

There has been an increase in investment funds in Islamic banking at an average annual growth of 22% with an estimated 700 Islamic investment funds around the world.

With regards to takaful insurance, in 2007, its premiums reached close to US $2.5 billion and are expected to reach $7.4 billion by 2015. Ninety percent of the takaful insurance market is in Malaysia, whilst the Kingdom of Saudi Arabia is expected to become more active in this field in light of new organization of the insurance sector.

Speaking of Saudi Arabia, I read a report on Islamic banking in Saudi that stated that the rate of Islamic finance in Saudi banks is estimated at 58 per cent of financial banking whilst the rate of Islamic investment funds stands at 77 per cent of all assets of investment funds. It is estimated that out of all active bank branches, 75 per cent are Islamic branches.

The growth of Islamic finance in Saudi Arabia over the last seven years is estimated at 430% and continues to increase since all banks in the Saudi market are seeking to provide Islamic banking services in order to stay in the race as many people see that there is no room for those who do not offer Islamic banking products.

* Lahem al Nasser is an Islamic banking adviser.

Related link on Islamic finance: www.globalpro.com.my

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